GREECE: Risk of reduced profitability remains high

7 December 2021 — Marina MAGNAVAL
The risk of reduced profitability, mainly in the long run, remains high, due to reduced demand for non-compulsory insurance, as stated by the Bank of Greece in its latest Financial Stability Report.

According to the Bank, interest rate risk is one of the main market risks, as insurers invest in assets with significantly lower returns than in previous years, while paying benefits calculated with increased guaranteed returns, insuranceworld.gr reports.

In the first half of 2021, assets of insurance companies continued the upward trend of recent years and amounted to EUR 20.2 billion, compared to EUR 19.79 billion at the end of last year, the Bank noted. In terms of asset structure, government bond placements remain the main investment category of insurance companies, with EUR 8.78 billion in June 2021 (43.5% of their total assets/vs EUR 9.21 billion and 46.6% of their assets in December 2020).

At the end of June 2021, total Solvency Capital Requirement (SCR) of the insurance business was EUR 2 billion (in December 2020: EUR 1.93 billion), while total eligible equity was EUR 3.88 billion (in December 2020: EUR 3.59 billion).

According to the European Insurance and Occupational Pensions Authority (EIORA), macroeconomic and credit risk as well as market risk remain high due to the uncertainty of the financial outlook. Combination of this uncertainty with the effects of low interest rates has created significant challenges in 2021 for insurance market regulators in Europe.

The risk of insolvency in the Greek insurance market remains low, as all insurance companies have a solvency ratio greater than 140% (equity that exceeds the capital requirement by at least 40%). On the contrary, the risk of reduced profitability, especially in the long run, remains high, due to the possible reduced demand for non-compulsory insurance.

To address the above risks, life insurance companies are gradually redefining their business model, focusing mainly on production and promotion of insurance with reduced capital requirements. Non-life insurance companies seek, primarily through appropriate pricing of insurance products available to new customers, to dynamically manage the downward volatility of the insurance cycle (underwriting cycle) observed, especially in the vehicle liability sector due to reduced traffic during the pandemic.



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